Changes needed at the IRS

It's not nice to tell people "I told you so." But if anybody has the right to say that, it's Nina Olson, the national taxpayer advocate.

By Michelle Singletary

recordnet.com

By Michelle Singletary

Posted Jan. 18, 2013 at 12:01 AM
Updated Jan 18, 2013 at 9:49 AM

By Michelle Singletary

Posted Jan. 18, 2013 at 12:01 AM
Updated Jan 18, 2013 at 9:49 AM

» Social News

It's not nice to tell people "I told you so." But if anybody has the right to say that, it's Nina Olson, the national taxpayer advocate.

Olson recently submitted her annual report to Congress, and top on her list of things that need to be fixed is the complexity of the tax code, which she calls the most serious problem facing taxpayers.

Let's just look at the most recent evidence of complexity run amok: The Internal Revenue Service had to delay the tax-filing season so it could update forms and its programming to accommodate recent changes made under the American Taxpayer Relief Act. The IRS won't start processing individual income tax returns until Jan. 30. Yet one thing remains unchanged - the April 15 tax deadline.

Because of the new tax laws, the IRS also had to release updated income-tax withholding tables for 2013. These replace the tables issued Dec. 31. Yes, let's just keep making more work for the agency that is already overburdened.

The tax code contains almost 4 million words. Since 2001, there have been about 4,680 changes, or an average of more than one change a day. What else troubles Olson (and most of us)? Here's what:

» Many taxpayers don't really know how their taxes are computed and what rate of tax they pay.

» The complex code makes tax fraud harder to detect.

» Because the code is so complicated, it creates an impression that many taxpayers are not paying their fair share. This reduces trust in the system and perhaps leads some people to cheat. Who wants to be the sucker in this game? So someone might not declare all their income, rationalizing that millionaires get to use the convoluted code to greatly reduce their tax liability.

» In fiscal 2012, the IRS received about 125 million calls. But the agency answered only about two out of three calls from people trying to reach a live person, and those taxpayers had to wait, on average, about 17 minutes to get through.

Olson urges Congress to reassess the need for tax breaks we know as income exclusions, exemptions, deductions and credits. It's all these tax advantage breaks that complicate the code. If done right, and without reducing revenue, tax rates could be substantially lowered in exchange for ending tax breaks, she says.

But, of course, it's not that simple. "The perennial challenge in enacting fundamental tax reform is that while most taxpayers support a simpler tax code in concept, many of us are reluctant to give up our existing tax breaks." In other words, we want other people's tax loopholes to be eliminated.

Still, Congress should make it a priority to simplify the tax code. I know I'm tired of Olson telling us so while year after year nothing gets done to truly push for change.

Contact Michelle Singletary, a personal finance columnist at The Washington Post, at singletarym@washpost.com.